The two firms have agreed to install corn oil separation technology with commercial production expected to begin this winter.

Highwater Ethanol CEO Brain Kletscher said other corn oil recovery options were investigated but the firm found the Butamax system to be class leading.

"The expertise Butamax assembled is unparalleled, including experts from BP, DuPont and Fagen," Kletscher said. "We are very excited to execute this stage and move to negotiations with biobutanol production."

Butamax CEO Paul Beckwith said his firm formulated a strategy to provide the most advanced technology to improve current biofuel production, offer better co-product profiles and pave the way for near-term, large-scale isobutanol production

"We could not be more excited about the next steps towards a whole new biofuels industry," Beckwith said. Butamax reached an agreement for the project engineering, procurement, and construction agreement with Fagen, Inc.

Butamax advertises biobutanol as having significant advantages over ethanol including higher energy density, which leads to 25 percent greater fuel economy (more miles per gallon), U.S. regulations allow biobutanol to be blended at up to 16 percent by volume, versus 10 percent for ethanol, and it can be blended directly at refineries and transported by existing fuel infrastructure.

Isobutanol, which can be produced from corn starch, cellulosic materials, agricultural residues and other ethanol feed stocks, has a higher energy density than ethanol, with 82 percent of the energy of a gallon of gas, compared to 67 percent for ethanol, according to Gevo, a leading renewable chemical and advanced biofuel firm.

In addition, isobutanol can be shipped in existing pipelines and blended with a variety of fossil fuel-based materials to produce "greener" versions of jet fuel, rubber, polyethylene and diesel.

Highwater Ethanol, which employs 40 people, began ethanol production in 2009 with a capacity of 50 million gallons a year of denatured ethanol. Supporting the local agricultural community, the facility provides almost 141,000 tons of DDGS (Dried Distiller's Grains with Soluables) and uses 19 million bushels of corn a year.